As processors continue to play catchup from Covid-19 forced lockdowns and labour shortages, Australia's developing energy crisis has injected unwanted cost hikes into the red meat sector.
And analysts are predicting the increase in gas and electricity prices could cost meat processors up to 200 per cent per head more than normal.
According to ANZ's latest Agri Commodity report, the sheepmeat industry felt the brunt of the pandemic, heavily impacted by lockdowns and lack of labour availability.
"While the sheep sector has been less impacted by the restocking zeal which has pushed cattle pricers into the stratosphere, it has also felt a greater impact from some of the side effects of Covid-19 and associated lockdowns," ANZ's head of Agribusiness Mark Bennet said.
"Processors are working through the national backlog, but the decline in slaughter and processing throughout the first half of the year saw many producers having to retain stock on-farm."
But now concerns have been raised about how a huge fundamental change in input costs will impact Australia's red meat processing sector, which is already suspected to be sustaining losses due to the low throughput earlier in the year.
Mecardo analyst Adrian Ladaniwsky said the spike in costs has the potential to translate back to lower prices for producers.
But he said the timing and severity of the impact for each individual meat processor will vary depending on the current structure and expiry date of their energy supply contracts.
"The worst impacted in the short-term, will be processors whose energy costs are directly linked to the wholesale electricity and gas spot markets," Mr Ladaniwsky said.
"On the other end of the spectrum, some operators may have long-term fixed contracts in place at low prices which will not expire until a point, months or years into the future."
He said it takes a lot of energy to convert a steer or lamb into a cut of meat for the dinner plate.
Those costs include refrigeration, steam and hot water generation for sterilization and wash down (90pc) of costs), as well as heat required for rendering.
According to the Australian Meat Processing council (AMPC), as of 2013/14, the energy intensity of the processing industry sits at around 3,005MJ/t HSCW.
But Mr Ladaniwsky said this is just an industry average with some plants using up to 35pc more energy, particularly if they undertake rendering activities.
"When we translate this back into an energy use per head basis, we can use the average Australian steer carcase weight of 348kg, and 22.4kg for a sheep and making it 1045MJ / (290Kwh) per steer, and 67.3MJ(19KWh) per head for sheep," he said.
"Australian spot gas prices are currently trading at 4.29/MJ at the Sydney node.
"A processor with no long-term contract, fully exposed to spot market gas rates would be paying $44.83 per steer and $2.88 per lamb in pure gas costs, excluding network charges under this model,.
"If the plant was fully electric-powered, at $0.30/KWh, the cost to process a steer would be higher at $87/head, and lamb at $5.70."
But despite the speculation about the impact of price rises upon the meat processing sector, Mr Bennet said all signs point towards a spring kick in the market.
"While there are several issues overhanging from the pandemic still impacting saleyard price and supply, the coming winter months should help regain a demand/supply balance," Mr Bennet said.
"Some in the industry are even predicting the National Trade Lamb Indicator may breach the magic 1000c mark."
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